Uber Rival Karhoo Closes Amid ‘Dire’ Financial Problemsby and
Karhoo statement says effort to find new investors failed
New management was brought in as staff worked without pay
A car-hailing service that claimed to raise $250 million and had ambitions to rival Uber Technologies Inc. is closing down less that two years after opening. Some are now questioning how much money the company ever had.
The company, Karhoo Inc., made a price-comparison app for car-hire services. It operated in a number of U.K. cities, and had opened offices in London, New York, Singapore and Tel Aviv. Despite the startup’s large ambition, customers never flocked to the service and the company said Tuesday that it ran out of money.
As investors found out about the company’s troubles, including an inability to make payroll, founder and Chief Executive Officer Daniel Ishag was removed, according to a person familiar with the change. Two other executives took over in an ultimately futile attempt to find new financing to keep the firm afloat, said the person, who asked not to be identified because the developments aren’t public.
"It was clear that the financial situation was pretty dire," the company said in a statement. "Karhoo was not able to find a backer."
Ishag didn’t respond to requests for comment.
After Karhoo announced it was closing down, two people with ties to the company said they were now questioning how much money the company ever had in the bank. Staff were largely unaware of the problems and were shocked and angered by the closure, one person said.
The quick journey from launch to crash is notable even by the standards of high-risk technology startups. Before it had released a product, the company made it public that it had attracted $250 million from high-profile investors and had plans to raise more than $1 billion to take on Uber. Karhoo’s app was initially scheduled to be released this year in January, but delays pushed it back to May. The company spent heavily on marketing and promotion, giving away free rides and buying television ad spots.
Karhoo’s experience illustrates the challenges companies face entering a market dominated by Uber. While Karhoo said it planned to roll out to more than 100 cities worldwide by 2017, it didn’t have the resources or customers to make that happen.
The company’s backers included Eric Daniels, the former CEO of Lloyds Banking Group Plc., who said his investment was "modest." Other reported backers include Nick Gatfield, the former chairman and CEO of Sony Music Entertainment; Jonathan Feuer of the European private equity firm CVC Capital Partners; and David Kowitz, co-founder of Indus Capital Partners. Feuer declined to comment. Gatfield and Kowitz couldn’t be reached.